U.S. Bankruptcy Courts

The 1,261,140 bankruptcy petitions filed in 2012 represent a 14 percent decline from the previous year’s total and the lowest total since 2008, when individuals and businesses filed 1,042,806 petitions. This year, terminations of bankruptcy cases fell 11 percent to 1,304,429. Because terminations exceeded filings, the number of pending cases dropped 3 percent to 1,623,916.

Bankruptcy petitions may be filed under one of six chapters of the Bankruptcy Code. Most consumer (i.e., nonbusiness) petitions are filed under chapter 7, which allows most non-exempt assets to be liquidated and debtors to receive a “fresh start,” or under chapter 13, which allows debtors with regular income to retain assets and obtain court-confirmed plans to pay off their creditors over a period of up to five years. Most business petitions are filed under chapter 7, which permits businesses to liquidate their assets and cease operations, or under chapter 11, which enables businesses to file plans to reorganize their debts and continue operating, to downsize, or to liquidate in an orderly manner. Filings under chapter 9 by local governments and instrumentalities, under chapter 12 by family farmers and fishermen, and under chapter 15 by foreign corporations or individuals collectively accounted for 685 filings in 2012, equaling less than one-tenth of 1 percent of all petitions filed.

Petitions filed under chapter 7 decreased 16 percent to 874,337. Nonbusiness chapter 7 petitions also fell 16 percent to 845,470, and business chapter 7 petitions declined 18 percent. Chapter 7 petitions accounted for 69 percent of all filings in 2012, down from 71 percent in 2011. Chapter 7 petitions also constituted 69 percent of both business filings and nonbusiness filings, down from 70 percent and 71 percent, respectively, in 2011.

Filings under chapter 13 fell 10 percent to 375,521. These petitions accounted for 30 percent of all filings in 2012, up from 28 percent in 2011. Nonbusiness chapter 13 petitions dropped 10 percent to 372,132 and amounted to 31 percent of all nonbusiness petitions, up from 29 percent in 2011. Chapter 13 petitions filed by individuals with primarily business debts decreased 11 percent to 3,389 and accounted for 8 percent of all business petitions, the same as in 2011.

Filings of chapter 13 petitions have long been more stable than filings of chapter 7 petitions, a trend that continued in 2012. In 2008 and 2009, chapter 7 petitions jumped 40 percent and 45 percent, respectively, whereas chapter 13 petitions increased 14 percent and 13 percent. In the last two years, chapter 7 filings have fallen at a greater rate than chapter 13 filings.

Chapter 11 filings declined 12 percent to 10,597. Chapter 11 cases, which typically require significantly more judicial resources than do cases filed under chapters 7 and 13, accounted for 1 percent of all filings, the same as in 2011. The 9,070 business chapter 11 petitions equaled 22 percent of all business filings, up from 20 percent in 2011.

1 Includes cases filed under chapters 9 and 15 of the bankruptcy code.

Although bankruptcy petitions declined overall, the rates at which they dropped varied significantly in different geographic regions. For the second consecutive year, all 12 circuits reported fewer filings, but decreases ranged from 20 percent in the Ninth Circuit to 9 percent in the Fifth Circuit and Seventh Circuit. The Ninth Circuit, which reported the smallest percentage decline in filings in 2011, had the largest percentage decline in filings in 2012.

The Federal Judiciary has 90 bankruptcy courts, one in each judicial district except for the Districts of Guam, the Northern Marianas Islands, the U.S. Virgin Islands (where the bankruptcy court is a division of the district court), and the Eastern and Western Districts of Arkansas (which share one bankruptcy court). Eighty-nine bankruptcy courts reported fewer filings in 2012, and only the Middle District of Alabama had more filings, an increase of 1 percent. Reductions of less than 5 percent occurred in the Western District of Tennessee (down less than 1 percent) and the District of South Carolina (down 4 percent). The greatest percentage declines were in the District of Nevada (down 26 percent) and in the District of Hawaii and the Northern District of West Virginia (down 25 percent in each district). Seven of the 10 districts with decreases of 20 percent or more were in the Ninth Circuit (the District of Arizona, the Central District of California, the Eastern District of California, the Northern District of California, the District of Montana, the District of Nevada, and the District of Hawaii).

Percent Change in Bankruptcy Filings, by District

A surge in filings that far exceeded normal filing levels occurred just before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) took effect on October 17, 2005. A significant decline in filings occurred thereafter. In the nearly seven years since the law took effect, bankruptcy courts saw significant growth in filings from 2007 to 2010, but filings later receded. Some of the growth between 2007 and 2010 may be attributed to a return to more typical filing rates seen prior to the enactment of BAPCPA, but economic hardship likely played a significant role as well. The relationship between bankruptcy filings and other economic indicators—unemployment, foreclosures, and overall economic growth—is a complex one. Several additional factors may also explain the recent declines in bankruptcy filings, including household deleveraging and creditors’ abandoning attempts to secure payments from debtors who have few or no assets.

Adversary Proceedings

Adversary proceedings are separate civil lawsuits that arise in bankruptcy cases, including actions to object to or revoke discharges, to obtain injunctions or other equitable relief, and to determine the dischargeability of debt. Adversary proceedings may be associated with consumer bankruptcy cases, but most arise in cases filed under chapter 11. They generally reflect the level of chapter 11 bankruptcy petitions filed two years earlier.

In 2012, filings of adversary proceedings decreased 29 percent to 53,931 (down by 21,769 proceedings). This was 18 percent above the total for 2008. The increase most likely reflects the 80 percent surge in bankruptcy petitions under chapter 11 since 2007.

Seventy-one districts reported lower filings of adversary proceedings. Forty-five districts had declines of more than 20 percent, and five had reductions of more than 50 percent. The largest decrease occurred in the District of Delaware, where filings fell 75 percent (down by 4,864 proceedings). In the Southern District of New York, filings dropped 66 percent (down by 2,699 proceedings). These two districts previously had received many filings related to “mega cases” (i.e., bankruptcy cases involving at least $100 million in assets and 1,000 creditors), which remain pending. Filings grew in 22 districts. The District of Guam, which had one filing in 2011, did not report any filings this year.